Sentiment towards a number of major indices is changing quickly after last week’s FED policy decision. A major recovery has been taking place in European indices, despite the ongoing Ukraine war. Now is a great time to check out how traders feel about the key European indices.
The trading sentiment is most effective when retail traders are running counter-trend, meaning that they are heavily leaning against established market trends and in increasingly large numbers. Additionally, once big sentiment skews build it can be a powerful sign that the retail crowd is being too one-sided.
Typically, market sentiment readings for an instrument that has reached around 75 to 80 percent is considered to be at an extreme level, while market sentiment readings over 80 to 95 percent is often a strong indication that the trade could be topping or about to reverse at any time.
I will now look at some of the strongest sentiment biases amongst the retail crowd right now. Some of the sentiment skews suggest that current price trends in FX, stocks, and precious metals are breaking points and big moves may be nearing.
UK100 – More Upside
According to the ActivTrader Market Sentiment tool traders, a large majority of traders are now bearish towards the UK100, despite the ongoing Ukraine war, which shows few signs of stopping right now.
The ActivTrader Market Sentiment tool shows that 74 percent of traders are expecting more losses in the leading UK index. This large one-way positive sentiment reading has remained consistent and is strongly warning that more upside is coming.
I think the technicals are also bullish after the UK100 bounced from the bottom of the rising price channel. Coupled with the bearish sentiment bias, I think more upside is likely.
Euro50 – Potential Bottom
The ActivTrader market sentiment tool shows that 61 percent of traders are bullish towards the sterling, following its recent price recovery in the Euro Stoxx 50, which covers a broad composite of European stocks.
Traders are still expecting a recovery, so it’s difficult to gauge if they are correct at this point in time, given that retail traders are usually on the wrong side of the trade.
In order for the bulls to be right, we really need to see some positive news coming from the Ukraine as this is a difficult time to be long risk-on asset classes.
GER40 – Getting Interesting
Market sentiment towards the GER40 is becoming more bullish, which is not very surprisingly given that the leading German index has move back above the technical important 14,000 resistance level..
The ActivTrader market sentiment tool showing that some 38 percent of traders currently bearish towards the Ger40, making sentiment difficult to read right now.
I think that the current sentiment has all the hallmarks of a short-term correction, within a bullish market, given that retail is usually on the wrong side of the market.
